Kinder Morgan cuts 2016 spending, lowers earnings guidance

Published 9:59 am, Monday, April 25, 2016

Kinder Morgan, the nation’s largest natural gas pipeline operator in the U.S., kicked off the first quarter earnings season by scaling back its expectations for 2016.

The Houston company said it expected its 2016 adjusted, pretax earnings to be about 3 percent less than the $7.5 billion it had previously budgeted. The forecast for distributable cash flow, an industry-standard metric that approximates how much cash the company has available to pay out or reinvest, sank by about 4 percent below previous annual forecast of $4.7 billion.

Net income was $314 million for the quarter, down 25 percent from $419 million in the same period last year.

In addition, the company cut its backlog of projects expected to be built in the next five years from $18.2 billion to $14.1 billion. Kinder Morgan cut out the Northeast Energy Direct Market project due to insufficient interest from customers and nixed the Palmetto Pipeline after it was blocked by regulators.

In a statement announcing the results, Kinder Morgan CEO Steve Kean said fewer projects and less spending would help the company focus on strengthening its financial footing.

Kinder Morgan’s first-quarter 2016 distributable cash flow, an industry-standard metric that approximates how much cash the company has available to pay out or reinvest, rose to $1.272 billion from $1.24 billion in the same period last year. In January, executives said they expected to see about $1.2 billion in distributable cash flow.

Net income was $314 million for the quarter, compared to $419 million in the same period last year.

Much of that cash will stay within Kinder Morgan’s business, thanks to a 75 percent dividend cut the company the company instituted in December.

Before the cut, Kinder Morgan had paid out almost all of the cash its businesses generated and borrowed to fund expenses such as new pipelines. But low oil prices have roiled credit and equity markets, and by late 2015 lenders and stock traders wanted a higher premium for opening their check books. The dividend cut allowed the company to bypass those markets and fund growth with its own cash. Executives said that self-funding growth was a better long-term move than using cash to pay a dividend.

In the first quarter alone, the company said it will have $954 million in cash after paying out its 12.5 cent quarterly dividend.

“We do not need to access the capital markets to fund growth projects in 2016,” said Richard D. Kinder, executive chairman and former CEO. “This cash flow in excess of our dividends insulates us from challenging capital markets and significantly enhances our credit profile.”